<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 1994 PURSUANT TO
- - --- SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
Commission file number 1-6157
HELLER FINANCIAL, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 36-1208070
- - --------------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 W. Monroe Street, Chicago, Illinois 60661
- - --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(312) 441-7000
--------------
(Registrant's telephone number, including area code)
None
----
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
100 shares of Common Stock, $.25 par value, outstanding at November 4, 1994.
================================================================================
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except for information on shares)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1994 1993
------------- ------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents........................................ $ 322,407 $ 170,358
Receivables
Commercial loans
Term loans..................................................... 2,698,453 2,806,595
Revolving loans................................................ 1,141,144 934,809
Real estate loans (Note 7)....................................... 2,148,978 1,886,366
Factored accounts receivable..................................... 933,817 720,658
Equipment loans and leases....................................... 815,377 664,080
---------- ----------
Total receivables.............................................. 7,737,769 7,012,508
Less: Allowance for losses on receivables........................ 232,636 211,357
---------- ----------
Net receivables................................................ 7,505,133 6,801,151
Investments and other assets..................................... 1,047,990 941,089
---------- ----------
$8,875,530 $7,912,598
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior debt
Commercial paper and short-term borrowings...................... $2,582,431 $1,981,370
Notes and debentures (Note 2)................................... 4,090,952 3,893,084
Junior subordinated notes (Note 2)............................... - 74,993
---------- ----------
Total debt...................................................... 6,673,383 5,949,447
Credit balances of factoring clients............................. 556,265 433,291
Other payables and accruals...................................... 274,122 242,325
---------- ----------
Total liabilities............................................... 7,503,770 6,625,063
Minority interest in equity of Heller International Group, Inc... 37,283 35,019
Stockholders' equity
Cumulative Perpetual Senior Preferred Stock, Series A
($.01 Par Value; 8.125%; $25 stated value;
5,000,000 shares authorized and outstanding)................... 125,000 125,000
Cumulative Convertible Preferred Stock, Series D
(No Par Value; 1/2% under prime; 1,000 shares
authorized and outstanding).................................... 25,000 25,000
Common Stock ($.25 Par Value; 1,000 shares authorized;
100 shares outstanding) and additional paid-in capital......... 663,067 663,067
Retained earnings................................................ 521,410 439,449
---------- ----------
Total stockholders' equity..................................... 1,334,477 1,252,516
---------- ----------
$8,875,530 $7,912,598
========== ==========
</TABLE>
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these statements.
2
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1994 1993 1994 1993
--------- --------- --------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income......................... $188,174 $157,971 $509,103 $468,205
Interest expense........................ 89,472 66,386 238,398 200,585
-------- -------- -------- --------
Net interest income................... 98,702 91,585 270,705 267,620
Fees and other income................... 39,978 30,022 122,521 97,748
Income of international joint ventures.. 6,557 5,813 17,100 16,530
-------- -------- -------- --------
Operating revenues.................... 145,237 127,420 410,326 381,898
Operating expenses...................... 47,921 45,881 140,366 131,384
Provision for losses.................... 47,607 52,559 137,482 157,850
-------- -------- -------- --------
Income before income taxes............ 49,709 28,980 132,478 92,664
Income tax provision.................... 19,278 784 39,396 2,153
-------- -------- -------- --------
Net income............................ $ 30,431 $ 28,196 $ 93,082 $ 90,511
======== ======== ======== ========
</TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF
CHANGES IN RETAINED EARNINGS
(in thousands)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------
1994 1993
---------- ---------
( unaudited)
<S> <C> <C>
Retained earnings at the beginning of the periods.................... $439,449 $331,124
Net income......................................................... 93,082 90,511
Preferred stock dividends.......................................... (8,711) (8,648)
Unrealized net gains on securities available for sale, net of tax.. 1,544 -
Deferred translation adjustment, net of tax........................ (3,954) (3,369)
-------- --------
Retained earnings at September 30, 1994 and 1993..................... $521,410 $409,618
======== ========
</TABLE>
The Retained Earnings balance includes deferred foreign currency translation
adjustments of $(16,541) and $(10,706) at September 30, 1994 and 1993,
respectively, and unrealized net gains on securities available for sale of
$9,538 at September 30, 1994.
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these statements.
3
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
---------------------------
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 93,082 $ 90,511
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses.................................... 137,482 157,850
Loans originated for resale............................. (62,153) (24,102)
Net proceeds from sales of loans originated for resale.. 53,871 23,369
Decrease (increase) in deferred tax asset............... 41,545 (30,231)
Undistributed income of unconsolidated joint ventures... (11,250) (13,287)
Decrease in interest payable............................ (642) (15,385)
Increase in accounts payable and accrued liabilities.... 14,520 24,304
Other................................................... 14,712 12,528
----------- -----------
Net cash provided by operating activities.............. 281,167 225,557
INVESTING ACTIVITIES
Longer-term loans funded................................... (2,024,942) (1,348,266)
Collections of principal................................... 1,411,143 1,351,725
Sales of longer-term loans................................. 293,263 120,595
Net increase in short-term loans and
advances to factoring clients............................. (433,317) (109,577)
Investment in equity interests, equipment on lease
and other investments..................................... (118,847) (49,546)
Sales of investments and equipment on lease................ 45,847 2,142
Other...................................................... 392 3,835
----------- -----------
Net cash used for investing activities.................. (826,461) (29,092)
FINANCING ACTIVITIES
Senior note issues......................................... 640,914 920,205
Retirement of notes and debentures......................... (517,500) (522,159)
Increase (decrease) in commercial paper and
other short-term borrowings............................... 601,061 (500,601)
Net increase in advances to affiliates..................... (18,714) (1,085)
Dividends paid on preferred stock.......................... (8,711) (8,648)
Other...................................................... 165 (9,892)
----------- -----------
Net cash provided (used) by financing activities........ 697,215 (122,180)
Effect of exchange rates on cash........................... 128 (15)
----------- -----------
Increase in cash and cash equivalents..................... 152,049 74,270
Cash and cash equivalents at the beginning of the period... 170,358 47,568
----------- -----------
Cash and cash equivalents at the end of the period......... $ 322,407 $ 121,838
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these statements.
4
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The accompanying consolidated condensed financial statements include the
accounts of Heller Financial, Inc. (the "Company") and its majority owned
subsidiaries and should be read in conjunction with the financial statements and
notes included in the annual report on Form 10-K of the Company for the year
ended December 31, 1993. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included in these
financial statements and were of a normal, recurring nature.
(2) Debt
The Company issued and retired the following notes and debentures during the
first nine months of 1994:
<TABLE>
<CAPTION>
Principal
Amount
---------
<S> <C>
Issuances: (in thousands)
Senior Debt - Notes and Debentures
Variable rate medium-term notes due on various dates
ranging from June 10, 1996 to April 25, 1999................ $262,000
Variable rate notes due on April 27, 1999..................... 200,000
3.80% Eurobonds denominated in Japanese yen due
August 26, 1997............................................. 145,914
Nikkei equity indexed medium-term notes due
December 20, 1999........................................... 33,000
--------
$640,914
========
Retirements:
Senior Debt - Notes and Debentures
9.1% to 9.8% medium-term notes due on various dates ranging
from February 15, 1994 to April 20, 1994.................... $ 18,500
Variable rate medium-term notes due on various dates ranging
from January 4, 1994 to November 15, 1995................... 304,000
6.45% notes due February 15, 1994............................. 10,000
6.45% notes due August 15, 1994............................... 10,000
8.375% notes due June 15, 1994................................ 100,000
Junior Subordinated Notes and Debentures
13% junior notes due September 15, 1994....................... 75,000
--------
$517,500
========
</TABLE>
The Company entered into several derivative instruments during the first nine
months of 1994 to match more closely the interest rate and currency
characteristics of its debt and assets. The Company employed cross currency
interest rate swap agreements to convert the 3.80% Eurobonds denominated in yen
to $146 million with interest based on the six and three month London Inter-bank
Offered Rates (LIBOR). The Company also entered into agreements which had the
effect of converting $185 million of medium-term notes dependent on various
floating rate and equity indices to rates based on three month LIBOR.
On November 1, 1994 the Company issued $200 million of 7-7/8% medium-term
notes.
5
<PAGE>
(3) Derivative Financial Instruments
Derivatives are used as an integral part of the Company's overall asset/
liability management program to manage exposure to fluctuations in interest
rates and currency exchange rates arising from normal business operations. These
agreements are used to enhance the correlation of the interest rate and currency
characteristics of its assets and liabilities. The Company is not an interest
rate swap dealer nor is it a trader in derivative securities, and it has not
used speculative derivative products for the purpose of generating earnings from
changes in market conditions.
The Company evaluates the cost of issuing term debt and the related swap
before determining how to fund its operations in the most cost effective manner.
Operations are frequently funded through the issuance of fixed rate debt or less
frequently through the issuance of debt denominated in a foreign currency.
Interest rate, cross currency and basis swaps as well as interest rate caps are
employed to convert these debt financings to variable rates and U.S. dollars to
match more closely the interest rate characteristics of its assets, which are
primarily floating rate assets. Additionally, the Company provides fixed or
floating loans to borrowers and uses interest rate swap or basis swap agreements
to alter the characteristics of specific asset pools to more closely match the
fixed or floating terms of the underlying financing, thereby mitigating its
exposure to interest rate volatility. The swap agreements are generally held to
maturity and the differential paid or received under these derivatives is
recognized over the life of the related agreement.
The Company also periodically enters into currency exchange contracts which
are designated as hedges of its exposure to foreign currency fluctuations from
its investments in certain European and Asian joint ventures and subsidiaries.
Through these contracts, the Company primarily sells the local currency and buys
U.S. dollars. Gains and losses resulting from translation of foreign currency
financial statements and the related effects of the hedges of net investments in
international joint ventures and subsidiaries are accumulated in stockholders'
equity, net of related taxes, until they are sold or substantially liquidated.
The Company also periodically enters into currency exchange contracts to hedge
its exposure to foreign exchange fluctuations on future earnings from
investments in certain European and Asian joint ventures and subsidiaries. These
contracts are carried at fair value. The gains and losses arising from changes
in the fair value of these contracts are included in the determination of net
income during the year in which they occur.
Before entering into a derivative agreement, management determines that an
inverse correlation exists between the value of the hedged item and the value of
the derivative. At the inception of each agreement, management designates the
derivative to specific assets, pools of assets or liabilities. The risk that a
derivative will become an ineffective hedge is generally limited to the
possibility that an asset being hedged will prepay before the related derivative
expires. Accordingly, after inception of the hedge, the asset/liability managers
monitor its effectiveness through an ongoing review of the amounts and
maturities of asset, liability and swap positions. This information is reported
to the Financial Risk Management Committee ("FRMC") which determines the
direction the Company will take with respect to its asset/liability position.
The asset/liability position of the Company and the related activities of the
FRMC are reported regularly to the Executive Committee of the Board of Directors
and the Board of Directors.
The counterparties to the Company's derivatives include commercial banks and
investment banking firms. Notional amounts are often used to express the volume
of derivatives but the credit risk of these agreements is generally much smaller
as it is limited to the cost of replacing the instrument if the counterparty
defaults. The Company manages this risk by establishing minimum credit ratings
for counterparties and by limiting the exposure to individual counterparties as
measured by the total notional amount and the current replacement cost of
existing transactions.
6
<PAGE>
(4) Income Taxes
The net deferred tax asset at September 30, 1994 was $67 million, which is net
of a valuation allowance of $17 million. Taxes paid during 1994 were $2 million.
(5) Statement of Cash Flows
There were certain noncash investing activities which occurred during the nine
month period ended September 30, 1994. As the result of significant cash equity
infusions by independent third parties, $117 million of positions in repossessed
companies were converted to equity investments. In addition, $59 million of
receivables were classified as repossessed assets and $19 million of repossessed
assets were resolved and returned to receivables. The comparable amounts for
the nine month period ended September 30, 1993 were $75 million and $19 million,
respectively.
(6) Related Party Transactions
The Company entered into a $200 million interest rate swap agreement with
Heller International Corporation (the "Parent"), effective January 13, 1994,
which expires December 15, 2000. The purpose of the agreement is to manage the
Company's exposure to interest rate fluctuations. Under this agreement, the
Company pays interest to the Parent at a variable rate based on the commercial
paper rate published by the Board of Governors of the Federal Reserve System and
the Parent pays interest to the Company at a fixed rate of 5.57%, which was
based on the then prevailing market rates for such transactions.
(7) Subsequent Event
During October, 1994 the Company securitized $298 million of mobile home park
receivables, net of discounts and deferred fees. Of the amount securitized, $245
million was sold, with limited recourse, resulting in a gain of $10 million.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
Percent Percent
1994 1993 Change 1994 1993 Change
------- -------- -------- ------- ------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest income......................... $188.2 $158.0 19% $509.1 $468.2 9%
Interest expense........................ 89.5 66.4 35 238.4 200.6 19
------ ------ ------ ------
Net interest income................... 98.7 91.6 8 270.7 267.6 1
Fees and other income................... 39.9 30.0 33 122.5 97.8 25
Income of international joint ventures.. 6.6 5.8 14 17.1 16.5 4
------ ------ ------ ------
Operating revenues.................... 145.2 127.4 14 410.3 381.9 7
Operating expenses...................... 47.9 45.8 5 140.3 131.3 7
Provision for losses.................... 47.6 52.6 (10) 137.5 157.9 (13)
------ ------ ------ ------
Income before income taxes............ 49.7 29.0 71 132.5 92.7 43
Income tax provision.................... 19.3 .8 * 39.4 2.2 *
------ ------ ------ ------
Net income............................ $ 30.4 $ 28.2 8% $ 93.1 $ 90.5 3%
====== ====== ====== ======
* Percentage not meaningful
</TABLE>
The Company achieved a 71% or $21 million increase in pre-tax income for the
third quarter while pre-tax results were 43% higher for the nine month period.
This increased profitability reflects higher fees and other income from several
product categories, a lower provision for losses due to improving portfolio
quality, and a third quarter increase in net interest income. Net income
increased 8% and 3% for the three month and nine month periods, respectively,
as the Company approached fully taxed status in 1994.
Net interest income for the current quarter was 8% higher than the third
quarter of 1993 reflecting higher asset based and real estate average earning
fund levels. Although earning funds grew 10% during the first nine months of
1994, the level of average earning funds for the nine month period was only
slightly higher than the prior year period, due to a steady reduction in
corporate finance funds employed over the course of 1993. The 9% or $41
million increase in interest income for the nine month period reflects the
rise in market interest rates as 81% of the average earning funds employed
were based on floating indices such as the three month London Inter-bank
Offered Rate, which increased to an average of 4.3% from 3.3%. Similarly,
the higher interest expense reflects the increase in the average borrowing
rate to 5.2% from 4.4%.
Fees and other income increased 33% for the quarter and 25% for the nine month
period due to increased revenues from real estate business initiatives, higher
gains from investments, and higher revenues from asset based businesses.
Higher operating expenses principally reflect costs related to business
initiatives in the asset based product category as costs in other core
businesses decreased.
The provision for losses decreased 10% and 13% from the prior year three month
and nine month periods as the level of problem loans continued to recede and the
performance of new financings over the past three years remained strong. The
allowance for losses was 3% of receivables and 113% of nonearning receivables at
September 30, 1994.
8
<PAGE>
The Company's effective tax rate increased to 30% for the nine month period of
1994 from 2% for the prior year nine month period, in which higher deferred tax
benefits were recognized. The Company's provision for income taxes is lower
than the statutory rate due to the favorable resolution of a tax issue and the
recognition of additional deferred tax benefits during the second quarter.
PORTFOLIO COMPOSITION
Lending assets and investments increased $852 million or 11% during the first
nine months of 1994 as the Company continued to make progress in diversifying
and growing its assets and sources of income. Asset based lending assets and
investments increased $681 million to 26% of total lending assets and
investments due to growth in each asset based product category and a seasonal
increase in factoring receivables. Real estate finance lending assets and
investments remained relatively stable at 26% of the total portfolio while the
level of corporate finance lending assets and investments decreased to 38% of
the portfolio. These changes demonstrate the Company's continuing effort to
develop a more balanced portfolio while maintaining its franchises in business
value lending and real estate finance.
<TABLE>
<CAPTION>
Lending Assets and Investments as of: Percent Change
September 30, December 31, By Category
---------- --------- -------- --------- --------------
1994 Percent 1993 Percent
---------- --------- -------- ---------
BY PRODUCT CATEGORY: (dollars in millions)
<S> <C> <C> <C> <C> <C>
Corporate finance................................ $3,290.3 38% $3,571.9 46% (8)%
Real estate finance.............................. 2,268.5 26 1,956.5 25 16
Asset based finance.............................. 2,193.7 26 1,512.5 20 45
Specialized finance and investments.............. 481.6 6 416.6 5 16
International factoring and asset based finance.. 360.5 4 285.1 4 26
-------- --- -------- ---
Total lending assets and investments........... $8,594.6 100% $7,742.6 100% 11%
======== === ======== ===
BY ASSET TYPE:
Receivables...................................... $7,737.8 90% $7,012.5 90%
Repossessed assets............................... 108.3 1 215.8 3
-------- --- -------- ---
Total lending assets........................... 7,846.1 91 7,228.3 93
International joint ventures..................... 175.7 2 143.8 2
Other investments................................ 572.8 7 370.5 5
-------- --- -------- ---
Total investments.............................. 748.5 9 514.3 7
-------- --- -------- ---
Total lending assets and investments........... $8,594.6 100% $7,742.6 100%
======== === ======== ===
Total Revenues for the
Nine Months Ended September 30,
--------------------------------------------
1994 Percent 1993 Percent
-------- ----------- -------- -----------
(dollars in millions)
Corporate finance................................ $277.8 43% $304.4 52%
Real estate finance.............................. 154.2 24 111.1 19
Asset based finance.............................. 159.1 25 108.0 18
Specialized finance and investments.............. 22.2 3 32.3 6
International factoring and asset based finance.. 35.5 5 26.7 5
------ --- ------ ---
Total revenues................................. $648.8 100% $582.5 100%
====== === ====== ===
</TABLE>
Although new corporate financings increased 38% during the nine month period,
corporate finance lending assets and investments decreased $282 million,
reflecting $1,046 million of repayments and syndications. The average retained
size of new transactions decreased 34% to $14 million from the $21 million
average existing transaction size at December 31, 1993. At September 30, 1994,
the Company was contractually committed to provide an additional $845 million
to new and existing corporate finance borrowers, generally contingent upon the
maintenance of specific credit standards by the borrowers.
9
<PAGE>
Real estate finance lending assets and investments increased $312 million to
26% of total lending assets and investments, principally reflecting growth in
the mobile home park, discounted loan acquisition and self storage facility
portfolios. During October, 1994 the Company securitized $298 million of mobile
home park receivables of which $245 million was sold with limited recourse.
The $681 million increase in asset based lending assets and investments
is due to growth in every product category in addition to a seasonal increase
in factored accounts receivable.
Asset based and real estate revenues grew to 49% of total revenues for the
first nine months of 1994 while corporate finance provided 43% of the total
revenues compared to 52% for the prior year period.
NONEARNING AND TROUBLED ACCOUNT ACTIVITY
Portfolio quality continued to improve during the first nine months of 1994
through the continued liquidation of pre-1990 corporate financings, reduction in
the office building portfolio, the favorable performance of the corporate
finance and real estate loans originated since 1990, and the lower level of risk
in the newer businesses.
<TABLE>
<CAPTION>
September 30, December 31, Percent
1994 1993 Change
------------- ------------ --------
Lending Assets and Investments: (dollars in millions)
<S> <C> <C> <C>
Receivables................................ $7,737.8 $7,012.5
Repossessed assets......................... 108.3 215.8
-------- --------
Total lending assets..................... 7,846.1 7,228.3 9%
====
Investments................................ 748.5 514.3
-------- --------
Total lending assets and investments..... $8,594.6 $7,742.6 11%
======== ======== ====
Nonearning Assets:
Nonearning receivables..................... $ 205.2 $ 214.1
Repossessed assets......................... 108.3 215.8
-------- --------
Total nonearning assets.................. $ 313.5 $ 429.9 (27)%
======== ======== ====
Ratio of nonearning receivables to
receivables.............................. 2.7% 3.1%
======== ========
Ratio of total nonearning assets to total
lending assets............................ 4.0% 5.9%
======== ========
Allowances for Losses:
Allowance for losses on receivables........ $ 232.6 $ 211.4 10%
====
Valuation allowance for repossessed assets. 13.5 15.2
-------- --------
Total allowances for losses.............. $ 246.1 $ 226.6
======== ========
Ratio of allowance for losses on
receivables to receivables................ 3.0% 3.0%
======== ========
Ratio of allowance for losses on
receivables to nonearning receivables..... 113% 99%
======== ========
Delinquencies:
Earning loans delinquent 60 days or more... $ 223.2 $ 145.1
Ratio of earning loans delinquent 60 days
or more to receivables.................... 2.9% 2.1%
======== ========
For the Nine Months Ended
September 30,
1994 1993
-------- --------
Writedowns: (dollars in millions)
Net writedowns on receivables.............. $ 92.1 $ 122.7
Net writedowns on repossessed assets....... 21.0 15.7
-------- --------
Total net writedowns..................... $ 113.1 $ 138.4
======== ========
</TABLE>
10
<PAGE>
Portfolio quality continued to improve as total nonearning assets decreased by
$116 million primarily due to the resolution of two large repossessed corporate
financings. These resolutions involved significant cash equity infusions by
independent third parties and the conversion of the Company's remaining
positions to equity investments. Total Company and corporate finance net
writedowns were $25 million and $36 million lower, respectively, for the nine
month period, and management believes that writedowns for the full year will
continue to be lower than in 1993. The majority of the increase in earning
delinquencies is attributable to corporate finance funds originated prior to
1990. Loans defined as troubled debt restructures decreased $13 million to $40
million, as a result of the repayment of one account.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1994, lending assets and investments increased
$852 million and $518 million of notes and debentures were retired. To meet
these funding requirements, the Company supplemented its improved cash flow from
operations by issuing $641 million of senior notes and increasing its commercial
paper and short-term borrowings by $601 million.
The levels of commercial paper, short-term borrowings and leverage remain
conservative relative to other similarly rated finance companies. The ratio of
commercial paper and short-term borrowings to total debt was 39% at
September 30, 1994 compared to 33% at December 31, 1993 while leverage was 5.0X
compared to 4.7X primarily due to the debt used to finance portfolio growth.
While these amounts are within the ranges targeted by the Company to maintain a
strong financial position, they are expected to decrease slightly by the end of
1994 due to the mobile home park securitization, a forecasted reduction of
commercial paper, and continued earnings performance.
The Company increased its bank credit facilities to $2.3 billion from $2.1
billion effective May 31, 1994. In addition, on March 30, 1994 the Company
further increased its liquidity support from unaffiliated financial institutions
by entering into an agreement with Freedom Asset Funding Corporation ("Freedom")
to sell, from time to time, an undivided interest in a designated pool of
factored accounts receivable of up to $500 million. Under the Freedom
agreement, the amount of liquidity provided by unaffiliated financial
institutions increased to $445 million from $65 million under the Dynamic
Funding Agreement, which it replaced.
At September 30, 1994, the Company had $3.3 billion of committed credit and
sale facilities, including unused bank credit facilities of $2.3 billion,
liquidity support of $500 million from Fuji Bank under the "Keep Well Agreement"
and $494 million available under the Freedom factored accounts receivable sale
program. Total committed credit and sale facilities amounted to 128% of
outstanding commercial paper and short-term borrowings, while total committed
credit and sale facilities from unaffiliated financial institutions amounted to
106% of outstanding commercial paper and short-term borrowings.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(12) Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
(27) Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated October 27, 1994 and November 1,
1994.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf by
the undersigned thereunto duly authorized.
HELLER FINANCIAL, INC.
By: Richard J. Almeida
------------------
Richard J. Almeida
Executive Vice President and
Chief Financial Officer
By: Anthony O'B. Beirne
-------------------
Anthony O'B. Beirne
Senior Vice President, Controller and
Chief Accounting Officer
Date: November 4, 1994
13
<PAGE>
INDEX TO EXHIBITS
(12) Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
(27) Financial Data Schedule
14
<PAGE>
EXHIBIT (12)
HELLER FINANCIAL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, 1994
----------------------
(dollars in thousands)
<S> <C>
Net income before income taxes and minority interest in
income of Heller International Group, Inc............... $135,761
Add-Fixed charges
Interest and debt expense............................... 238,398
One-third of rentals.................................... 5,940
--------
Total fixed charges.................................... 244,338
--------
Earnings................................................. $380,099
--------
Ratio of earnings to fixed charges....................... 1.56
========
Preferred stock dividends on a pre-tax basis............. $ 12,398
Total combined fixed charges and
preferred stock dividends............................. $256,736
--------
Ratio of earnings to combined fixed charges and
preferred stock dividends............................... 1.48
========
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" includes income before income taxes,
the minority interest in Heller International Group, Inc. income and fixed
charges. "Combined fixed charges and preferred stock dividends" includes
interest on all indebtedness, one third of annual rentals (approximate portion
representing interest) and preferred stock dividends on a pre-tax basis.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
HELLER FINANCIAL, INC. QUARTERLY REPORT FORM 10Q FOR THE PERIOD ENDING SEPTEMBER
30, 1994 PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 0
<INT-BEARING-DEPOSITS> 322,407
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 18,634
<INVESTMENTS-HELD-FOR-SALE> 30,627
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 7,737,769
<ALLOWANCE> (232,636)
<TOTAL-ASSETS> 8,875,530
<DEPOSITS> 0
<SHORT-TERM> 2,582,431
<LIABILITIES-OTHER> 830,387
<LONG-TERM> 4,090,952
<COMMON> 663,067
0
150,000
<OTHER-SE> 521,410
<TOTAL-LIABILITIES-AND-EQUITY> 8,875,530
<INTEREST-LOAN> 509,103
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 509,103
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 238,398
<INTEREST-INCOME-NET> 270,705
<LOAN-LOSSES> 113,405
<SECURITIES-GAINS> 0<F1>
<EXPENSE-OTHER> 164,443
<INCOME-PRETAX> 132,478
<INCOME-PRE-EXTRAORDINARY> 93,082
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,082
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<YIELD-ACTUAL> 5.04
<LOANS-NON> 205,164
<LOANS-PAST> 134,392
<LOANS-TROUBLED> 40,363
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 211,357
<CHARGE-OFFS> 106,261
<RECOVERIES> 14,135
<ALLOWANCE-CLOSE> 232,636
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 232,636
<FN>
<F1> The Company is a finance company whose normal operations do not include the
trading of investment securities.
<F2> Earnings per share information not provided as Heller Financial, Inc. has
only one common shareholder.
</FN>
</TABLE>
